Category: Economics
The NIH plan to fix social science
Here is an overview of what is up, here is the plan itself. Since it was produced by a bureaucracy rather than a blogger, it is hard to wade through the verbiage. Nonetheless one of the bottom lines is a call for greater unity of methods and especially terms, so as to make discrete studies by different researchers more easily comparable, searchable, and aggregated into broader meta-studies, for instance:
In response to these types of measurement concerns, the Patient-Reported Outcomes Measurement Information System (PROMIS) developed a common scale or metric on which all measures of a given construct can be expressed. To achieve this, PROMIS developed and tested item banks using modern psychometric theory that, in addition to producing more precise and efficient measures, allow different measures of the same construct to be cocalibrated. As a result, different instruments measuring the same construct can be expressed on a single metric, aiding data harmonization and integration.
Another approach to addressing this data harmonization and integration challenge is to develop consensus measures for specific constructs. PhenX, for example, has developed a curated set of measurement protocols for specific phenotypic constructs. The NCI Grid-Enabled Measures website utilizes a crowdsourcing wiki approach to cataloging the various measures of a given social or behavioral construct. The National Library of Medicine has generated a directory of common data elements that serves as a repository for commonly accepted measures and data structures that, if adopted by researchers, would facilitate data integration across studies.
The original pointer is from Mitchell Eckert. Keep in mind economists that, depending on your definition of economics, the NIH arguably supports at least as much economics research as does the NSF.
You might also be interested in University of Wisconsin job market candidate Nathan Yoder, whose main paper, a theory paper, is on improving incentives for academic research. Here is the latter part of the abstract:
In keeping with current practice, the institution contracts based on the experiment’s result instead of its methodology. This removes a degree of freedom from the optimal design problem, but I show that there need not be loss from doing so. The optimal contract has two general characteristics. First, to discourage the production of false positive results, negative results supporting conventional wisdom must be rewarded. Second, the most informative results must be disproportionately rewarded. To arrive at these conclusions, I contribute to the literature by characterizing solutions and comparative statics of Bayesian persuasion problems using differentiability.
These topics remain very much understudied.
Cuba’s glum economic forecast
That is my latest Bloomberg column, here is one excerpt:
One way to approach Cuba’s economic fate is to consider the Caribbean region as a whole. For the most part, it has seen mediocre results since the financial crisis of 2008. Economic problems have plagued Puerto Rico, Trinidad, Jamaica, Haiti and Barbados, with only Jamaica seeing a real turnaround.
The core problems of the region include high debt, weak commodity prices, lack of economies of scale and an inability to upgrade tourist facilities to compete with the U.S., Mexico and further-flung locales. Cuba cannot service its foreign debt, and losing most of its support from Venezuela has been a massive fiscal problem.
Perhaps the country most like Cuba in the Caribbean, in terms of history, heritage and ethnic composition, is the Dominican Republic. Currently, it has a nominal gross domestic product of somewhat over $6,000 per capita, depending which source you prefer. That’s far from the bottom tier of developing economies, but it’s hardly a shining star. And Cuba will take a long time to attract a comparable level of multinational investment, or to develop its tourist facilities to a comparable level of sophistication. Well-functioning electricity and air conditioning cannot be taken for granted in Cuba, especially after the major decline in energy supplies from Venezuela.
The most optimistic forecast for Cuba is that, after a few decades of struggle and reorientation, it will end up at the income level of the Dominican Republic.
If you are wondering, the World Bank measures Cuban GDP at over $6,000 per capita, but that is based on a planned economy and an unrealistic exchange rate. In reality, Cuba probably is richer than Nicaragua, where GDP per capital is approximately $2,000, but we don’t know by how much. Cuba does have relatively high levels of health care and education, but we’ve learned from post-Soviet reform experiences that it is easy for a nation to lose those advantages. There are already shortages of many basic health care items, including medical technology and antibiotics.
There is much more at the link.
The best book on the contemporary Cuban economy
Buy Richard E. Feinberg, Open for Business: Building the New Cuban Economy. It also will make my best non-fiction books of the year list. See also his Miami Herald interview, and his long Brookings paper on FDI in Cuba.
Pay by the minute coffee shop the Arrow-Hahn-Debreu markets that are Brooklyn
A café in New York has found a way around this whole awkward dance: customers pay by the minute, rather than the cup.
The Glass Hour Café in Williamsburg, Brooklyn feels more like somebody’s living room than a coffee shop. Walking around, you see a couch, some bean bag chairs. What you won’t see at Glass Hour: a kitchen or even a cappuccino machine. You serve yourself from a simple drip coffee pot. The food? A few humble granola bars and chocolates.
The owners, who opened it in August, call it an anti-café. Instead of shelling out for food and drink, customers pay for the time they spend — 10 cents a minute or $6 an hour. Which means no one will judge you for sitting here all day long.
Pay-as-you-go cafés are new to the U.S., but there are dozens in Europe, mostly in Russia. Glass Hour’s Zlata Koshlina and her cofounders are Russian immigrants and got the idea for their cafe from a Ziferblat café in Moscow.
Here is more, via Air Genius Gary Leff. But why Russia? Is it because there is a closer association between higher income and higher status in Russia, and thus charging an explicit price for time does not bring a negative clientele composition effect?
How much did tariffs drive 19th century U.S. economic growth?
Not so much:
The role of high tariffs in the emergence of the U.S. as a leading industrial nation in the late 19th century is still hotly debated. Despite its symbolic signifi- cance in the arguments of Free Trade, the quantitative implications of the tariffs on key features of the development are still unknown. In this paper I ask: Could the U.S. have grown as it did without the high tariffs imposed on its manufacturing imports in the late 19th century? To see this clearly, my analysis is quantitative and counterfactual in nature, effectively isolating the effects of the tariffs from other important forces. To do this, I construct a three-region general equilibrium model. The model is calibrated to match the key data during this period. Then, I disentangle the effects of the tariffs under two different assumptions. First, I assume that manufacturing productivity is exogenous to the tariffs. Then I assume that there exists learning-by-doing in U.S. manufacturing so that the tariffs positively affect productivity. Contrary to popular beliefs, I find that the effects of high manufacturing tariffs are quantitatively small. Even with learning-by-doing, tariffs only contributes about 4 percent to the growth of the manufacturing output, and a little more than 1 percentage point to its share in world manufacturing from 1870 to 1913. I then ask what the key driving forces for development are. I find that the large increase in labour force is the single most important factor behind the development of the U.S. economy.
That is from a 2013 job market paper by Yeo Jooon Yoon (pdf), emphasis added by me. See also this earlier Doug Irwin paper, all hat tips go to PseudoErasmus.
How might corporate income tax be changed?
This is what is circulating in the House, Trump and the Senate have yet to influence it directly:
KEY DIFFERENCES BETWEEN CURRENT U.S. CORPORATE TAXES AND HOUSE GOP PROPOSAL
Corporate Tax Rate:
Current: 35%
Proposal: 20%Capital Expenses:
Current: Depreciated over time
Proposal: Deducted immediatelyInterest Expenses:
Current: Deductible.
Proposal: Net interest expense not deductibleBasis for Location of Taxation:
Current: Profits
Proposal: SalesTaxation of Foreign Profits:
Current: Pay foreign tax, pay U.S. tax upon repatriation, minus foreign tax credits
Proposal: Generally repatriated without U.S. taxes, after one-time transition taxBorder Adjustments:
Current: None
Proposal: Tax applied to imports, removed from exports
There is more at the WSJ link, a very clear and useful piece by Richard Rubin. Do note that a stronger dollar — which we already see — will undo some of this effort to put American exports on a stronger footing. And deducting capital expenses immediately seems like an attempt to goose up the current economy in an unwise and unsustainable fashion. The lower corporate tax rate is a good idea. What are your opinions on these changes?
Is healthy food a luxury for low-income households in the United States?
It seems quite a few of the poor, when they get some extra money, want to keep on buying refined sugar. Or in other words, it takes quite a bit of income (or is it education?) to “elevate taste.” Here is the job market paper by Olga Kozlova of Duke University:
This paper explores how the low-income households change the quality of their food basket when they experience a budget increase. I use the variation in the monthly household budget coming from the exogenous variation in the winter temperature that directly affects the heating bills. I show that in response to a higher budget available the expenditure share on healthy food does not increase. I find that households increase the share of expenditure on fruits, but they purchase fruit products with a higher amount of sugar. My findings suggest that there are important trade-offs in policies that subsidize food expenditure because these policies allow low-income households to purchase more of the healthy as well as the unhealthy food products.
Also on the job market, from Northwestern, here is Mara P. Squicciarini, whose job market paper argues that Catholic education held back economic growth in 19th century France. She also co-edited a book The Economics of Chocolate.
Why Is Turkey Cheaper When Demand Is Higher?
When you do your Thanksgiving shopping this week, you will encounter two vastly different options for the centerpiece: an expensive heritage, organic, antibiotic-free, freshly killed turkey; or a relatively cheap, mass-produced, rock-solid-frozen bird. The frozen birds are a pretty attractive deal — especially because this time of year, they are unusually cheap. According to government data, frozen whole-turkey prices drop significantly every November; over the last decade, retail prices have fallen an average of 9 percent between October and November.
That trend seems to defy Econ 101. Think back to those simple supply-and-demand curves from introductory micro, and you’ll probably remember that when the demand curve shifts outward, prices should rise. That’s why Major League Baseball tickets get most expensive during the World Series — games that (theoretically, anyway) many more people want to see. Similarly, airline tickets spike around Christmas.
That’s Catherine Rampell but don’t read the whole thing. Argue about it! Happy Thanksgiving.
*The Great Convergence*
The author is Richard Baldwin and the subtitle is Information Technology and the New Globalization. The new globalization is the vertical geographic spread of the supply chain, as enabled by information technology. Think iPhone, the components of which are made in a number of different countries. (By the way, here is a very good Adam Minter piece on why an American-made iPhone would be very difficult to pull off.) The important form of trade today is data flows, which enable the export of “how to” knowledge to an unprecedented degree. Here is one excerpt:
Since so much globalization policy was crafted with the Old Globalization in mind, much of the policy response is misshaped or at least suboptimal. To take a couple of obvious examples, economic institutions like labor unions tend to be organized by sectors and skill groups since that was the level at which the Old Globalization affected economies. And national education strategies typically seek to train children for promising jobs in promising sectors since the Old Globalization cut a predictable path that defined sunrise and sunset sectors. Likewise, governments around the world seek to dampen the pain of structural adjustment with policies linked to declines in particular sectors of particular geographic areas (often those that had specialized in sunset sectors). Most of these policies are inappropriate for today’s globalization, which is more sudden in its impact, more individual in its effects, more uncontrollable for governments, and more unpredictable overall.
Ultimately, there can be no magic solutions to the changed nature of globalization. The New Globalization makes life harder for governments. But the intrinsic difficulty is multiplied by the fact that many governments and analysts are using the Old Globalization’s mental model to understand the New Globalization’s effects.
For Baldwin, the case against TPP, from a U.S. point of view, rests on the possibility that it would ease knowledge transfer abroad and thus erode American competitive advantages. This focus on data flows, by the way, means that most traditional trade statistics are misleading if not outright wrong. There is much in this book to ponder.
What if Donald Trump wanted *more* illegal immigration?
That is the topic of my latest Bloomberg column, here is the premise:
Imagine that a new U.S. president, different from the one we just elected, set out to maximize the number of illegal Mexican immigrants. Maybe he or she saw electoral advantage in this, or maybe just thought it was the right thing to do. But how to achieve that end? Imagine also that I was called into the Oval Office to give advice.
So what would I suggest?
I would start by recommending an enormous new program of fiscal stimulus and construction…
Don’t forget this:
By the way, infrastructure programs will help illegals in other ways, more than would citizen-focused Social Security or Medicare benefits, for example. Illegal immigrants use roads and mass transit and electricity and other forms of infrastructure all the time. And they won’t suffer much if subsidies for health insurance under Obamacare are reallocated to construction because it was so hard for them to get those subsidies in the first place.
There is much more at the link. My conclusion is this:
The president-elect we have, whether he knows it or not, already has figured out how to maximize the number of illegal Mexican immigrants.
Who ever said Donald Trump can’t solve a problem?
Clinton Won The Economy
Here’s a interesting breakdown of the Trump-Clinton vote from Jim Tankersley at the Washington Post.
According to the Brookings analysis, the less-than-500 counties that Clinton won nationwide combined to generate 64 percent of America’s economic activity in 2015. The more-than-2,600 counties that Trump won combined to generate 36 percent of the country’s economic activity last year.
Clinton, in other words, carried nearly two-thirds of the American economy.
That’s another way of saying city versus rural, more educated versus less educated and so forth but it’s an interesting way of thinking about cities, geography and the division in US politics.
Medical Spending Variation: 1/2 Patients, 1/2 Places
In Miami, health care providers spent about $14,423 per Medicare patient in 2010. But in Minneapolis, average spending on Medicare enrollees that year was $7,819, just over half as much. In fact, the U.S. is filled with regional disparities in medical spending. Why is this?
One explanation focuses on providers: In some regions, they may be more likely to use expensive tests or procedures. Another account focuses on patients: If the underlying health or the care preferences of regional populations varies enough, that may cause differences in spending. In recent years, public discussion of this issue has largely highlighted providers, with the implication that reducing apparently excessive treatments could trim overall health care costs.
But now a unique study co-authored by MIT economists provides a new answer to the medical cost mystery: By scrutinizing millions of Medicare patients who have moved from one place to another, the researchers have found that patients and providers account for virtually equal shares of the differences in regional spending.
“We find it is about 50/50, half due to patients and half due to places,” says Heidi Williams, the Class of 1957 Career Development Associate Professor in MIT’s Department of Economics, and a co-author of a new paper detailing the study’s findings.
That’s MIT News ably summarizing the new Finkelstein, Gentzkow, and Williams paper, Sources of Geographic Variation in Health Care: Evidence From Patient Migration (ungated).
If the half of the variation that is due to place is inefficient (which could mean too low or too high but probably means too high given that the medical care curve is flat) then this puts an upper limit on the gains from standardization but still a quite high limit.
By the way, Finkelstein and Gentzkow are both recent John Bates Clark Medal awardees and Williams is a MacArthur “genius award” winner. Perhaps I should have titled this post, assortative co-authoring.
Renaissance Technologies
Renaissance is unique, even among hedge funds, for the genius—and eccentricities—of its people. Peter Brown, who co-heads the firm, usually sleeps on a Murphy bed in his office. His counterpart, Robert Mercer, rarely speaks; you’re more likely to catch him whistling Yankee Doodle Dandy in meetings than to hear his voice. Screaming battles seem to help a pair of identical twins, both of them Ph.D. string theorists, produce some of their best work.
Excellent piece that raises many questions such as, Is finance really the best use for two string theorists? And if you think the answer to that question is obvious you may need to learn more string theory.
Japan insurance markets in everything, moral hazard edition
One of Japan’s largest casualty insurers is going to start offering internet and social media backlash insurance.
Here is the link, including to the original Japanese.
Teach math in the morning
Having a morning instead of afternoon math or English class increases a student’s GPA by 0.072 (0.006) and 0.032 (0.006), respectively. A morning math class increases state test scores by an amount equivalent to increasing teacher quality by one-fourth standard deviation or half of the gender gap. Rearranging school schedules can lead to increased academic performance.
That is from a new paper by Nolan G. Pope, who is on the job market this year from the University of Chicago. Here is his overall profile. His job market paper (pdf), with Nathan Petek, suggests that evaluating teachers by multi-dimensional metrics, and not just test scores, can bring big gains to educational quality.